OUTLOOK ’19: US PP industry hopes to see reduced volatility

HOUSTON (ICIS)–The US polypropylene (PP) industry is hoping to see reduced volatility in 2019, following a year marked by large price swings.

The high levels of volatility in the PP industry have been driven by similarly wide swings in upstream propylene costs. Most US PP contracts are formula-based and are set at polymer grade propylene (PGP) values plus an adder.

Propylene supply is likely to be less volatile in 2019.

More stable availability of the feedstock should lead to easing of PP supply concerns that were a prominent feature of the market in 2018. Supply problems were also caused by a number of unexpected plant issues and these are also unlikely to repeat in the coming year.

Improved supply could also help to rebalance international trade flows for PP.

In 2018 feedstock propylene experienced frequent supply shortages stemming from production issues at propane dehydrogenation (PDH) plants.

Lower crude oil prices are likely to lead to improved propylene supply. NYMEX WTI futures dipped sharply in the last two months of 2018 and cracking heavier feedstocks such as propane and butane becomes more economically advantageous in a low oil price environment.

Propylene is produced as a by-product of ethylene in steam crackers, and heavier feedstocks produce a larger volume of propylene co-product per unit of ethylene produced.

High refinery operating rates should also help ensure a more stable supply of propylene. Strong demand for fuel exports to Mexico have kept refinery operating rates high in the US for the past several years and this trend is expected to continue into 2019.

Around half of US propylene is produced by fluid catalytic crackers (FCCs) as a by-product of gasoline production.

Shortages of domestic PP along with price volatility also lead to increased interest in imports from US buyers. While interest in overseas cargoes waned in the closing months of 2018 amid steep decreases in domestic PP prices, an increasing number of buyers are incorporating imports into their purchasing strategies to guard against domestic price volatility.

PP contract prices settled with either increases or decreases of 5 cents/lb ($110/tonne) or more in seven of the first 11 months of the year.

Focus article by Zachary Moore

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